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Harrisburg's summer rush

Long-pushed bill to bring back payday lending stores gets another try.

HARRISBURG - It's a typical June in the Capitol: As the summer break nears and a multibillion-dollar budget is being parsed and penciled behind closed doors, the House and Senate are hurrying lesser bills through the voting process like short-order cooks flipping pancakes.

Some of those pancakes deserve a second look.

One fast-tracked proposal would bring back the controversial practice of payday lending to stores in neighborhoods, strip malls, even hospitals.

The measure passed the House on a 102-90 vote Wednesday, after a veritable army of lobbyists for the short-term loan industry worked Capitol offices.

Among the firms represented: Cash America, one of the nation's largest payday lenders, which in this legislative session has reported spending $125,000 on lobbying in Harrisburg.

Sometimes, legislative leaders put members' pet bills on the calendar even if they have little hope of passage, the better to give those members something to tout in an election year - which this is.

For instance: the clutch of conservative legislators who want to abolish property taxes by expanding the sales tax. Or gun-rights supporters, pushing a bill to put the kibosh on cities' ability to enact their own gun laws by giving any "aggrieved" group - such as the National Rifle Association - legal standing to sue those cities.

Longtime Harrisburg observer G. Terry Madonna says the rush of bills this June is par for the course.

"Typically, governors have had to wheel and deal with leaders who have to wheel and deal with members, not just on the budget but with other items on agenda," said Madonna, a political scientist and pollster at Franklin and Marshall College. In recent years, he said, the legislature's schedule "leaves this period when bills move quickly with little notice."

Sometimes, the stars align in June for a bill that has languished. The payday loan bill's chief sponsor, Rep. Chris Ross (R., Chester), has pushed the issue for a decade - but for most of that time, Democrats ruled in the House and the governor's office. Now both are in GOP hands; the vote on the bill was mostly along party lines.

Ross said the legislation offers a regulated alternative to questionable Internet loans. "People are taking short-term loans out and are availing themselves of something that is totally unregulated," he said. "We need a regulated, licensed alternative."

While offering no specific evidence that online loan lenders are scamming Pennsylvanians, he said their very existence proves people are using them.

Ross likens short-term lenders to corner grocers past, who would advance customers a few weeks' credit so they could feed their families.

The legislation would require short-term lenders to get state licenses and abide by rules governing loan terms and limiting borrowers to a maximum of 25 percent of their gross monthly income, or $1,000, whichever is less.

It would allow lenders to charge 12.5 percent interest plus a $5 fee on each loan. A $300 loan, for example, would cost $342.50 to repay at the end of two weeks.

Opponents argue that the bill's language on interest rates is trumped by the fact that most borrowers can't repay loans in two weeks.

"Twelve and half percent doesn't sound bad for two weeks, but you have to look at the annual percentage rate - and that's at 369 percent," said State Rep. Mike Sturla (D., Lancaster).

Payday lending stores left Pennsylvania in 2005 after new federal rules made the practice less attractive to banks.

Groups representing military families, retirees, and others say storefront loans with high interest rates tend to trap desperate people in a cycle of debt.

Kerry Smith, a lawyer with Community Legal Services in Philadelphia, said the House bill gives lenders a way around existing laws that cap interest rates at 24 percent.

The bill will "increase the harms of a product we know is destructive and do nothing to stop the debt trap," she argued. "Instead it gives a carve-out to small loan shops who can charge exorbitant rates."

A Defense Department study found that a majority of payday loan business comes from customers seeking to borrow anew to repay a previous loan. That research - sparked by the proliferation of payday loan stores outside military bases - helped drive federal legislation that capped interest rates for military families.

Ross said his bill had an array of protections to ensure that people don't get taken advantage of - such as requirements that a borrower pay off one loan before taking out a new one, and that lenders offer free counseling.

A failed amendment from State Rep. Mark Cohen (D., Phila.) would have barred such stores in hospitals. Ross said a hospital was a legitimate locale for a short-term loan business. For instance, he said: "If you are considering a medical procedure that's fairly urgent and you are short of money."

A spokeswoman said Gov. Corbett would withhold judgment on the bill until it passes the Senate. Ross said he was confident of the governor's support since Corbett's secretary of banking, Glenn Moyer, helped negotiate the bill.

Of course, not every bill voted in June becomes law. Sometimes the brakes get applied as legislators focus on passing one big bill - the budget - by the June 30 deadline.

Erik Arneson, spokesman for Senate Majority Leader Dominic Pileggi (R., Delaware), said of the payday lending bill, "We will review it but at this point have no plans one way or the other."

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